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In-App Purchase – The Future is Here

Back in March 2013, I wrote The Future of Software Pricing, which talked about the disturbing trend of bargain basement software prices on the App Stores and ways to combat the problem. At the time, we had released MoneyWell Express to test out the in-app purchase (IAP) waters and our results were positive. Since MoneyWell Express is a companion app to our Mac version, I was cautious about our conversion percentages because existing customers are more likely to buy the IAP.

The real test has just begun. We recently released MoneyWell for iPad, which is also a free app with an IAP, but this app can stand on its own and can be sold to customers who have never used MoneyWell and might use an iPad as their primary computer.

I believe that IAP is a powerful tool that allows us to raise the ceiling on our app pricing. Unfortunately, the primary apps using IAP are games and the publishers have abused the power of IAP. If I could download a game and use IAP to unlock levels, that would be fine. I’m thrilled when I can try a game for free and then pay to unlock more advanced levels. What drives me crazy are the games that bombard me with ads to buy consumables—even to get through the first few levels. Having to constantly dismiss prompts for purchases takes away from the game play and I have deleted these abusive games without paying a dime. Obviously, I’m not the norm because the top-grossing apps in the App Store are these same games. People are paying hundreds of dollars over the lifetime of a game, but they still balk at a $20 upfront purchase.

In a way, I don’t blame people for not wanting to risk their money. The limited information a prospective customer has prior to a purchase is one of the problems with Apple’s App Store. People are supposed to fork over money for apps, but only get to see five screenshots and a few paragraphs of text before making a decision—that just doesn’t cut it. My goal with IAP is to allow potential customers to try all the core features of MoneyWell, which allows them to make an informed purchase. If you can download transactions, create a budget, and review your spending activity for free, you will know if our personal finance techniques fit they way you do your banking and budgeting.

Deciding which limits to put in an app to be unlocked with IAP is a tricky process. I didn’t want people to feel like we were extorting money out of them so they could continue to use the app. Instead, the limit we put on MoneyWell has to do with the number of active bank accounts: The free version allows only one bank account and our “Unlimited Accounts” IAP unlocks the ability to use as many accounts as you’d like. This means that you can install MoneyWell for free, use it completely with one account and decide that it’s a quality app for your needs.

This IAP design also gives us the ability to deliver a free app to those customers who only have a single account. You don’t need to pay anything at all to use MoneyWell because there are no other limits. You also won’t get hit with ads to purchase Unlimited Accounts. The only indication that you have any restriction comes when you add more than one account. The accounts list shows a passive “Locked” badge instead of the account balance and if you tap one of those locked accounts, you are then told there is an IAP to unlock them. If you are a person who only needs one account, you’ll never have a clue that you need to pay us anything.

Yes, we will lose some money, but I think it’s a worthwhile tradeoff. There is no barrier to try our app and the free download opens us up to a much wider audience. The risk of earning no money is small because people who only have a single bank account are the minority and most likely will add other accounts in the future. When they do, they are more likely to pay for our IAP than to switch apps.

Marco Arment’s Underscore Price Dynamics post points out how skewed the general public is about software pricing. His article discusses that any upfront app cost can be a huge barrier to a purchase. Many software companies choose to charge $5 or less for their apps to reduce this obstacle. As I’ve stated before, unless you have hundreds of thousands of customers, you can’t run a software company on a $2, $5, or even a $10 app. It’s time consuming and expensive to create and support great apps, and I’d really like to see software companies take a stand and charge a price that’s fair to both them and their customers.

MoneyWell for Mac is a $50 app, which is a lower price than what some of our competition charge. Our target with the development of MoneyWell for iPad was to produce an app on par with, or better than, our Mac app. In my mind, a full-featured finance app is worth the same price no matter what platform it’s on. MoneyWell for iPad is lacking a few features when compared to its sibling on the Mac, so our price point for it is $40.

It’s early to talk about conversion rates—ten days just isn’t a large sample—but I think this will be worthwhile to reflect back upon in six months or so. This chart is also skewed because our current marketing is primarily to existing customers. We’ll expand our marketing to a wider audience in the next few weeks, which will most likely drop the percentage as more people try MoneyWell that have had no experience with it before. Still, I think the chart above is worth a look. Overall, we are seeing a 25 percent conversion rate. That’s a fantastic number that I don’t expect to see a year from now, but wouldn’t mind at all if we were anywhere near close to it.

We’ve already had some pushback on the $40 price point, but that was expected. Our initial 50 percent off sale is ending September 30 and that may also cause our conversion rate to drop. I’ll keep tracking our progress and reporting it here on my blog. I truly believe that IAP is the future and if I’m wrong, it will be a very public failure. Stay tuned.